Big Four Broadcast Networks Set for 20% Gain in Upfront Market

Still Short of 2008 as Ad Buyers Temper Enthusiasm Over Economic Recovery

NEW YORK (AdAge.com) -- The four big broadcast networks could take in as much as 20% more in this year's upfront market than they did in 2009 -- but it still won't be enough to get them back to the high-water mark they enjoyed in 2008, according to a new analyst report from Barclays Capital.

ABC, CBS, NBC and Fox should net approximately $8.26 billion in prime-time advertising commitments, according to Barclays analysts Anthony DiClemente and George Hawkey, up 20% from the $6.88 billion in commitments the analysts say the networks secured in 2009. Yet that total is still down approximately 6% to 7% from the $8.8 billion Barclays estimates the broadcasters captured in 2008. Overall, only News Corp.'s Fox will see its 2010 totals surge past its upfront performance in 2008, the report projects -- and it will secure more dollars for prime-time than NBC, even though it runs fewer hours of programming in that part of the schedule.

Walt Disney's ABC is expected to take in $2.21 billion, up 16.2% from the $1.9 billion it secured in 2009's prime-time upfront market, but not enough to match the $2.51 billion it attracted in the prior year. CBS Corp.'s CBS is expected to secure $2.43 billion, up 27.5% from the $1.91 billion it attracted in 2009, but not enough to surpass the $2.5 billion it secured in 2008, Barclays said. NBC Universal's NBC is expected to take in $1.65 billion, up 12.8% from the $1.46 billion it secured in 2009, but not enough to beat the $1.85 billion it attracted in 2008.

Meanwhile, Fox is projected to take in $1.96 billion, up 22% from the $1.61 billion it attracted in 2008 and a hair more than the $1.95 billion it secured in 2008, according to the report.

Only CBS and Fox have posted season-to-date commercial-ratings gains, or an uptick in the viewership of people who watch commercials either live or as much as three days later, across all demographics year over year, according to Barclays.

Upfront commitments represent monies that are promised, not paid. Advertisers place money down early in an attempt to lock in prices for a large majority of their advertising, particularly in the important fourth-quarter holiday season. Even so, they can pull portions of their commitment at certain points during the year, if they desire, or if a network changes the programming that attracted the money in the first place.

Auto and financial-services rebound
If the analysts' report bears out, broadcast networks are likely to see their take rise significantly from last year's recession-crimped session, powered by renewed strength from automotive advertisers, which were hard-hit by the downturn. Likewise, TV executives say they are seeing increased activity from the troubled financial-services category.

Consumers and the marketers that follow them, on the other hand, are still making increasing use of video entertainment and information from a wide variety of digital sources. Television remains "the place big marketers go to either launch a new product or maintain market share," said Ed Atorino, a media analyst at Benchmark Co. But whether the networks can reverse a trend in which upfront totals have slipped or remained essentially flat remains "an open question," he said.

Price increases
Some TV executives have privately suggested they will seek price increases in the low double-digit percentage range at this year's upfront, while some buyers say they will press to keep those increases in the mid-single-digit percentage range.

"If broadcast networks insist on starting from an extremely aggressive position, we will be encouraging clients to move money or wait," one media buyer said. "We're not going to support and fuel the craziness."

In 2009, advertisers were able to secure price rollbacks in the cost of reaching 1,000 viewers, also known as a CPM -- a standard measure in negotiations for TV ad inventory -- in the range of 1% to 3%. Since that time, however, the Dow Jones Industrial Average has jumped and the economy has shown signs of improvement. Along with it, prices for scatter advertising -- or commercial time purchased much closer to air date -- has jumped to levels some 15% to 25% higher than prices paid in the upfront, according to TV executives and analysts.

Unemployment still a problem
Ad buyers say they may threaten to move some of their clients' budgets to digital and social media if they can't get the prices they wish. Others hint that the economy is not as robust as some think, with many consumers still unemployed. "It's one thing to be paying high double-digit for scatter over upfront, but to see billions of dollars going down at incredibly inflationary prices when there are still a lot of people on unemployment and a lot of businesses are still suffering is just bad business," said Peter Gardiner, chief media officer at Interpublic Group of Cos.' Deutsch.

Fox and CBS are likely to set the pace of the market, the Barclays report suggested, with those two networks securing CPM increases in the mid-to-high single-digit percentage range. Barclays projected that ABC and NBC will secure increases in the mid-single-digit percentage range.

The four big broadcast networks are also likely to sell more time in the upfront. Last year, as marketers cut back their upfront spend, the networks held back more of their inventory, gambling that the economy would improve and they would have the ability to charge higher prices in the scatter market. That maneuver has certainly paid off.

Barclays estimated ABC will sell 76% of its inventory in this year's upfront market, up from 68% in last year's market; CBS will sell 74%, up from 65%; NBC will sell 77%, up from 71%; and Fox will sell 81%, up from 75%.

Decreasing importance?
Despite the scrutiny attached to this annual TV-advertising bazaar, its importance in the grand scheme of things is decreasing as more advertisers buy year-round or at times that match their business needs. The event is also diminishing due to any number of industry shifts, such as staggered show-releases over the course of a year, consumer use of emerging technologies and a heavier reliance on cross-platform ad sales.

Even setting aside the outlying recession year of 2009, ABC's upfront take represented 6.9% of Disney's overall revenue in 2008, according to the Barclays report; in 2010, it is projected to account for 5.5%. Fox's upfront take accounted for 5.9% of News Corp.'s revenue in 2008, according to the research; in 2010 it should do the same.

At CBS, where the TV network represents the largest part of CBS Corp.'s operations, upfront revenue accounted for 19.2% of CBS Corp. revenue in 2008; in 2010, it should account for 17.8%, according to Barclays. NBC's upfront take accounted for 12.6% of NBC Universal's revenue in 2008, the report said; in 2010, it should represent 10.1%, the report said.